Construction of Sarulla geothermal project to start June

After more than 20 years of delay, construction of the planned 330 MW Sarulla geothermal project in Tapanuli Utara, North Sumatra, is expected to start soon as financial close for the project is set for Friday (today) as all of the necessary conditions have been met, with the outlook that ground breaking could be made next month, Kontan reported Friday.

?The plan is for the construction to be started next month,? said President Director of state-owned electricity firm PLN, Nur Pamudji on Thursday.

As reported by this portal earlier, members of the Sarulla Consortium comprising of Medco, Itochu, Kyushu and Ormat Technologies signed $1.17 billion project financing agreements in March of this year to finance the development and construction of the Sarulla geothermal project.

Closing was expected in the second quarter of 2014 subject to fulfillment of certain conditions. Upon closing, the consortium is expected to begin construction with the first phase to commence operation in 2016. The remaining two phases are scheduled to be in commercial operation within 18 months of the first phase.

Ormat will supply its Ormat Energy Converters to the power plant and will add the $254 million supply contract to its product segment backlog once Notice to Proceed is issued, concurrently with the closing of the financing. According to the current project plan Ormat expects to recognize revenue from the project over the course of the next three to four years starting in the third quarter of 2014. In addition, Ormat, through its subsidiary Ormat International, Inc., holds a 12.75% equity stake in the Sarulla project.

These financing agreements were signed with the Japan Bank for International Cooperation (JBIC) and the Asian Development Bank (ADB), who serves as the lead structuring banks, six commercial banks (the Covered Lenders), as well as ADB in its capacity as implementing entity of the Clean Technology Fund and the Canadian Climate Fund.

The Sarulla project will obtain construction and term loans under a limited recourse financing package of direct loans from JBIC and ADB, as well as loans from the Covered Lenders backed by political risk guarantees from JBIC.

The project will be developed and implemented under a 30-year energy sales contract with PLN, the national electricity utility company, a 30-year joint operating contract with Pertamina Geothermal Energy, and a 20-year guarantee from the Ministry of Finance. (*)